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Reports indicate that many Americans are struggling with hefty monthly car payments. This is partly attributed to surging car prices, which is leaving many borrowers paying $700 to $800 per month.
Here, we will explain how vehicle repossession works and the best ways of dealing with bad credit that result in the aftermath.
What Happens After Your Car Gets Repossessed?
Many individuals work hard and demonstrate smart financial practices as they build credit. In most states, lenders may consider repossessing a car as soon as borrowers miss one payment.
In a car loan, vehicles represent collateral that affords the lender a form of security. When payments go unpaid, the lender will repossess the vehicle and either keep or sell it to offset losses.
Within days of a repossession, lenders must send borrowers some written documentation. This will include a disclosure explaining the added fees associated with the repossession. Also included are details about retrieving any personal property that was in the car.
Lenders should also provide the borrower with details if they plan to sell the vehicle. For example, in Ohio, the lender should notify the borrower 10 days before selling the car at an auction.
You will have the option of redeeming the vehicle in the days after repossession. Redemption involves paying off the remaining loan balance plus any late fees, towing, and storage expenses.
Depending on the loan agreement and local laws, a loan reinstatement option might also exist. Here, the borrower pays any past-due amounts and fees, gets the car back, and resumes the payments.
The process of selling the vehicle will be redeemed or reinstated.
What To Do If Your Car Was Repossessed
Many motorists find themselves momentarily in disbelief upon realizing their car is gone. The first step generally involves locating any documentation regarding your auto loan. Next, you should contact the lender and begin exploring your options.
Immediately Contact Your Lender
After repossession, the vehicle will usually remain in a storage facility. Upon reaching your lender, ask them for a detailed written disclosure. The document should explain any fees for towing, storage, and any options for reclaiming the car.
During this time, you will review your financial situation. Both the process of redeeming or reinstating will require having some cash. At this point, the grim reality of no longer having your car may set in.
If the lender sells the vehicle, it will usually go through an auction. The proceeds from the sale are then applied toward the balance owed on the loan. (Also see How Fast Will a Car Loan Raise My Credit Score? if you’d like to know more.)
Keep in mind that often the sales price is insufficient for satisfying the full balance. Under these circumstances, you still have a legal obligation for any deficiency balance. Lenders may attempt to recoup this loss through civil means.
Find Out If You Can Get Your Repossessed Car Back
It is reasonable to assume that you will not have enough cash in savings to pay off the loan balance. If that were the case, the repossession likely would never have occurred.
Thus, explore the possible loan reinstatement option. Remember that any such action to recover the vehicle is likely very time-sensitive.
Remain open-minded about the possibility of loan modification options. Some lenders will consider restructuring the loan. For example, reducing the monthly payment amount by extending the length of the loan.
Know Your Legal Rights
Borrowers with a car loan should review their lending agreement and local laws regarding their rights.
Most states allow lenders or their agents to enter your property and repossess a vehicle. This is usually permitted after payments are past due and may or may not require notice.
Lenders seeking to repossess a vehicle are typically bound by some basic requirements. Lenders or their repossession agents must avoid “breaching the peace” when retrieving vehicles.
An example of a breach of peace might include any use of or threat of physical force. Another prohibited act might include entering a locked garage by creating some property damage or means of forced entry.
Many in the vehicle financing industry have embraced new forms of technology. Examples include GPS devices for locating vehicles and devices with remote disabling capabilities.
Lenders also must allow for retrieval of any personal belongings inside the vehicle.
Get Your Personal Property Back
Following a vehicle repossession, the lender must allow you to retrieve your personal belongings. The details of the process might vary based on state law.
They should provide you with the times and location in writing. Make a list of all the belongings that remained in the vehicle.
One “grey area” may involve certain items that are physically part of the vehicle. For example, it’s unlikely that you will have the option of retrieving installed components, such as an upgraded stereo system.
Work On Your Credit
Estimates vary regarding the extent of the damage that a repossession has on your credit score. The other accounts contained in your credit history will factor in.
Sources estimate that a repossession might trigger a 50 to 150-point drop in your credit score. Here, the road to recovery begins with responsibly paying all remaining credit accounts.
Consider the various options that exist today for improving credit. Some credit building apps offer ways of tracking your progress.
An example would be obtaining a credit-builder loan from a financial institution. Secured credit cards are another common tool for improving credit. Remain skeptical of any “quick fix” credit offers, as many are unscrupulous.
Keep in mind that no remedy will happen “overnight.”